The Federal Reserve (Fed) is set to announce its rate decision on Wednesday, September 20, 2023, at 14:00 ET. The announcement will be followed by a press conference with Jerome Powell, the Fed Chairman, half an hour later. Crypto traders are predicting little to no surprises from the Fed's decision, expecting the benchmark borrowing cost to remain steady between 5.25% to 5.5%.
This anticipation comes amidst a period of low volatility in bitcoin and traditional markets, which is expected to continue after the Fed's decision. The central bank has raised rates by 525 basis points since March 2022 in an attempt to control inflation, injecting volatility into both crypto and traditional markets.
"The Fed has been very adamant about remaining 'data dependent' and signaling the ability to 'hold rates higher for longer'. To me, this means the Fed can navigate this week's FOMC meeting by keeping rates unchanged, but signaling rates will remain elevated while they monitor economic releases," said Greg Magadini, director of derivatives at Amberdata.
The Fed's future actions regarding interest rates will depend on how inflation and employment evolve. The central bank is expected to repeat this message in its Wednesday announcement. If the Fed signals an end to the tightening cycle, markets could quickly price in renewed liquidity easing.
Singapore-based crypto trading firm QCP Capital commented on the situation saying, "We doubt it [volatility] will come from this Fed itself," adding that they do not see how Powell can assuredly call an end to this hiking cycle given the surging pump prices and rebounding inflation.
Bitcoin options expiring on Friday indicate that these rate decisions could be non-events. Markus Thielen, head of research and strategy at crypto services provider Matrixport, said that based on Bitcoin options market pricing, traders expect that BTC will only move by 2.8% this Friday.
In the run-up to the Fed's decision, the crypto market capitalization decreased overnight. Despite expectations of a pause by the Fed in this review, markets fear the Fed would keep interest rates restrictive and higher for longer to win the fight against inflation. The Dollar Index, a barometer of the Dollar's relative strength shed 0.19 percent to trade at 105.00.
Most cryptocurrencies appeared overwhelmed by fears of the Fed's stance now as well as going forward. Bitcoin breached past $27,400 after a gap of close to 3 weeks but is currently changing hands at $27,097, declining 0.15 percent in the past 24 hours. Ethereum dropped 0.83 percent overnight to trade at $1,629.98.
Despite anxiety ahead of the Fed's review, it indeed has been a positive week for crypto markets. Of the top 100 cryptocurrencies, only 11 have lost 1 percent or more in the past week. However, market capitalization of cryptocurrencies as a whole decreased to $1.07 trillion from $1.08 trillion a day earlier.
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